By Bhavik Patel
Crude oil prices saw decline on Thursday after Energy Information Administration’s report of an estimated inventory decline of 4.2 million barrels for the week to May 24, as fuel inventories rose.
Traders appear to be locked between expectations of softer demand and uncertainty about supply sufficiency. The virtual likelihood that OPEC+ will continue its voluntary production cutbacks into the second half of the year influences supply estimates.
OPEC+ is aware that prices will plunge if it doesn’t. We have seen some uptick in the geopolitical crisis with Israel’s takeover of control over Gaza’s border with Egypt suggests that the war there is not going to end anytime soon, and with it, the risk of an escalation that could jeopardize the Middle East’s oil supply.
Another Houthi attack on a ship in the Red Sea has confirmed suspicions that normal traffic through the Suez Canal is not about to return anytime soon. Meanwhile, weak data from China also does not bode well for crude prices.
Data released by the National Bureau of Statistics of China showed that the purchasing managers’ index (PMI) declined to 49.5 in May from 50.4 in April. The market was expecting it to be at 50.5 for May.
During May, both new orders and foreign sales witnessed a decline. The US economy grew at 1.3 per cent in the first quarter. The market was expecting 1.6 per cent growth during the quarter. Driving demand from the US has also not materialized as expected so we are seeing a decline in crude oil prices.
MCX Crude oil trend is weak as the market is making lower top and lower bottom formation on daily scale. It is also trading below its 21-day moving average while momentum oscillator RSI_14 is bearish trading around 42.
Immediate support comes around Rs 6350 which is the previous swing low while major hurdle is above 6728. Twice this month, Crude has tested the levels of Rs 6725 per barrel followed by correction as Rs 6725 per barrel is proving to be a strong hurdle.
Looking at yesterday’s price action, we believe any long positions could only be taken above 6725. Till then it is sell on rise around Rs 6580 per barrel with stoploss of Rs 6725 per barrel and expected target of Rs 6345per barrel.
(Disclaimer: Bhavik Patel is a Senior Commodity/Currency Research Analyst at TradeBulls Securities. Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)